Yale University study reveals opportunistic pricing patterns
By Chris Tomlinson
Houston Chronicle, Dec. 16, 2015
Hospitals and doctors behave similarly to other for-profit businesses when it comes to setting prices, charging as much as the market will bear with little consideration for input costs, according to a Yale University analysis of private insurance billing data.
That means if a hospital or doctor has a monopoly in a geographic area, they will charge more than in locations where there is competition. Prices for the same procedure can also vary dramatically within the same community based on marketing.
The Yale study is revolutionary because it relies on data from private insurance companies, not government-funded Medicare, which has more power to set prices and keep costs down because it covers the most expensive 16 percent of the U.S. population when it comes to health coverage.
“Spending patterns for the privately insured do not look like those for Medicare,” the authors concluded. “For example, in 2011 Grand Junction, Colorado, had the third-lowest Medicare spending per beneficiary among the nation’s 306 hospital markets, but the ninth highest inpatient prices and the 43rd highest spending per privately insured beneficiary.”
The study reveals why insurance companies work so hard to control health care costs. The prices they are charged have little to do with actual costs and have everything to do with the regional health care markets.
Hospitals and doctors argue that they must charge private insurers more in order to make the economics of their businesses work. Payments from government programs like Medicare, and Medicaid particularly, do not generate enough profits to stay in business, industry lobbyists say.
These inefficiencies help explain why the U.S. for-profit health care industry consumes 17 percent of U.S. gross domestic product, twice as much as the average industrialized country that uses a national health care system. The market-based approach also explains why health care costs in the U.S., and therefore insurance premiums, are growing faster than in any other country.
A single-payer system where all Americans pay into a national health insurance program, like Medicare, would make a huge difference. A single-payer would reduce the ability of providers to gouge prices, while setting national standards for care. It would also dramatically reduce administrative costs.
Opponents, though, will continue to stoke fears that a single-payer system would reduce the quality of care in order to guarantee that they continue to capture out-sized profits.
Unfortunately, that means that health care costs will continue to spiral out of control, with elaborate care for the wealthy and only basic care for everyone else. One day, Americans will realize that the free enterprise does not always hold the solution to every problem, particularly when it comes to something as vital as our health.
Chris Tomlinson is a business columnist at the Houston Chronicle.